Here’s how to allocate scarce renewable resources

Amid a global drive towards sustainable energy, here we aim to untangle the complexities of allocating limited renewable resources among industrial and mobility sectors. Finite renewable hydrogen, electricity and biomass feedstocks beg the question of which industries are most in need of sustainable feedstocks.

With the growing demand for greener alternatives, the competition for renewable resources has intensified, prompting key players to address pressing questions about fair distribution, innovative supply chain solutions, technological advancements, effective policies and the importance of investment and partnerships to accelerate the allocation of the limited renewable resources by 2030.

In this article, we reflect on how to better ensure a collaborative spirit among sectors, instead of a cannibalizing approach to feedstock allocation in the race to decarbonize first.

The future energy mix will require an all-of-the-above approach, with efficiency profiles, transport limitations and supply chain considerations shunting demand centres to different energy sources. Many key clean technologies (electric vehicles, heat pumps and water heaters, to name a few) will draw their energy from the grid — with those electrons produced from zero-carbon sources — while others will need to rely on clean fuels, such as biofuel, hydrogen and others. Each one of these resources lends itself to particular use cases. This raises the stakes of the allocation question.

For example, hydrogen, a promising clean energy carrier, relies on water and clean power as feedstock. And, with climate change destabilizing global weather patterns — drought can threaten hydropower and nuclear power installations, for instance, while rising global temperatures are forecast to reduce wind speed around the world — the availability of renewable energy sources for hydrogen production alongside electricity generation is not guaranteed. Regions, such as the south of Spain, facing water shortages, highlight the need for a nuanced approach to utilize available resources to make hydrogen efficiently.

The dilemma of allocating green power to hydrogen production or directly greening the grid has become a contentious element of transition debates. The answer will be contingent on the existing energy mix, with a key factor being the current carbon intensity of the grid. Striking the right balance is imperative for an effective energy transition.

The emergence of champions in both demand and supply chains is essential for successfully navigating the energy transition. Companies committing to energy transition targets serve as exemplars on the demand side, driving the push for cleaner alternatives. An equally critical need exists, however, for leaders spearheading the transition in the supply chain, steering industries away from traditional fossil fuels towards green molecules.

While the current supply meets existing demand, the pivotal question revolves around the timeline – how fast can production and demand align with climate ambitions? The market is deemed unlikely to regulate itself to achieve this alignment; crucial government interventions are necessary to ensure price stability and to incentivize production and demand.

Regulations, such as procurement mandates, play a significant role in incentivizing investments in green technologies or sustainable fuels. Similarly, carbon pricing is increasingly considered across industries as a powerful tool, capable of creating a level playing field and incentivizing the adoption of green alternatives. The success of the Emissions Trading System (ETS) in Europe served as a testament to the transformative potential of the carbon pricing mechanism.

Moreover, a robust certification scheme will be vital to prevent fraudulent production and enhance the premium value of clean energy feedstock. The European consumption of used cooking oil (UCO) serves as a poignant example, having more than doubled since 2015, primarily driven by its use in biodiesel for cars and trucks and expectations of it becoming a key component in sustainable aviation fuel (SAF). However, challenges arise as there have been reported instances where virgin oils, such as palm oil, are suspected of being falsely labelled as "used." This deceptive practice aims to exploit the elevated value attributed to genuinely green fuels, emphasizing the critical need for a comprehensive, audited and globally recognized certification system to foster customer trust and guarantee the origin and nature of the product.

This extends to the key role of establishing stringent standards for the mitigation of the environmental impact of biomass production. These standards serve as crucial guidelines, encompassing practices that promote biodiversity conservation, responsible land use management and sustainable agricultural methods.

Industry specialization is a potential more organic solution to alleviate the competition for the same resources. By diverting different types of energy to different industries, the pressure on identical feedstock can be alleviated, fostering a more sustainable and equitable approach.

Specialization and allocation informed by market conditions and physical limitations is the subject of a growing body of work aimed at analyzing the most efficient ways to decarbonize a given industry. For example, hydrogen may be well suited for the decarbonization of steel manufacturing, but less well suited as a fuel for smaller passenger vehicles (as compared to other decarbonization pathways). Roland Berger and BloombergNEF, among other organizations, are pioneering such work in an effort to optimize the deployment of these rapidly growing fuels. Additionally, to drive the same type of cost reduction experienced by the solar industry, large-scale manufacturing of key components will need to grow. Electrolyzers are of particular concern, with their production currently concentrated in just a few countries.

To conclude, the dual focus on demand and supply chain champions, coupled with strategic government interventions, will be a linchpin for successful decarbonization. Incentivizing production and demand through mechanisms like carbon pricing, mandates and certification schemes is imperative for accelerating the transition to cleaner alternatives.

Industry specialization and equitable allocation provide a blueprint for mitigating resource competition, while the imperative of manufacturing at scale underscores the need for global collaboration.

As the world grapples with the urgency of climate action, these learnings serve as guiding beacons for shaping a sustainable and resilient energy future.